'Ticking time bomb' pension deficit could mean academies cutting staff, experts warn

17th October 2016 at 00:01
Turbulent pension markets after Brexit vote has led to drastic increases in academy deficits

A “ticking time bomb” in pension deficits could force academies to cut teaching staff in a bid to plug the funding gap, one of the country’s biggest school auditors has warned.

Fallout from the Brexit vote has sent pension funds into turmoil and academies have seen their deficits dramatically expand by between 75 and 100 per cent, the accountants have said.

Schools that convert to academy status are forced to take on the liability of the Local Government Pension Scheme, which the vast majority of non-teaching staff in state funded schools are signed up to.

UHY Hacker Young says the record low returns on investment that pension funds have seen in the wake of the EU referendum vote means academies will have to look at taking drastic action to meet their pension commitments.

“The rise in academy pension fund deficits is once again causing considerable concern- many are now acutely aware that they could face a ticking time bomb,” Allan Hickie, partner at UHY Hacker Young, said.

According to the work carried out by the accountancy firm, the average mid-sized secondary has seen its pension deficit soar to nearly £2m up from around £1m. The average primary pension deficit has leapt from around £500,000 to at least £850,000 it said.

While there is not an immediate need to pay of the “substantial sums”, Mr Hickie said there is “a lot of anxiety surrounding what will happen long-term”.

Academy trustees are being forced to find savings in their costs in order to plug the deficit he added.

“Staff costs make up around 75 per cent of an academy’s budget, and so if cuts need to made schools will almost certainly look at this area,” he said. “Maintaining education standards on a potentially reduced staff will be a challenge many academies may be forced to accept.”

 

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